Functions of Several Variables

Let us consider the functions: 𝑖) 𝑃 = 20 + 5𝑄

𝑖𝑖) 𝑄 = 2𝐿 + 5𝐾 2
𝑖𝑖𝑖) 𝑢 = 𝑥 2 + 𝑦 2 + 𝑧 2 + 2𝑥𝑦.
In above examples: we find that demand function P depends upon only one variable
namely Q. So, we can rewrite it as: 𝑃 = 𝑓(𝑄)
In the second example. the quantity produced 'Q' depends upon two variables namely
K and L. So, we can rewrite it as: 𝑄 = 𝑓(𝐿, 𝐾)
In the third example. the variable ′𝑢′ depends upon three variables namely x, y and z.
So, we can rewrite it as: 𝑢 = 𝑓(𝑥, 𝑦, 𝑧)
Now, the functions represented in second and third examples stand for functions of 2
and 3 variables respectively hence termed as functions of several variables.
Partial Derivative
Let f(x,y) be a function of two variables. Then the partial derivative of f w.r.t. 'x' is
obtained by differentiating w.r.t. x and treating y as constant. The partial derivative
𝜕𝑓
of f w.r.t. 'x' is denoted by or 𝑓𝑥 .
𝜕𝑥
Similarly, the partial derivative of f w.r.t. 'y' is obtained by differentiating w.r.t. y and
𝜕𝑓
treating x as constant. The partial derivative of f w.r.t. 'y' is denoted by or 𝑓𝑦 .
𝜕𝑦
For example, if f(x,y) = x2+y2 then,
𝜕𝑓 𝜕(𝑥 2 +𝑦 2 ) 𝜕(𝑥 2 ) 𝜕(𝑦 2 )
= = + = 2𝑥 + 0 = 2𝑥.
𝜕𝑥 𝜕𝑥 𝜕𝑥 𝜕𝑥
𝜕𝑓 𝜕(𝑥 2 +𝑦 2 ) 𝜕(𝑥 2 ) 𝜕(𝑦 2 )
= = + = 0 + 2𝑦 = 2𝑦.
𝜕𝑦 𝜕𝑦 𝜕𝑦 𝜕𝑦
Second Order Partial Derivative
𝜕2 𝑓
The partial derivative of fx w.r.t. 'x' is denoted by fxx or and is called second order
𝜕𝑥 2
𝜕2 𝑓 𝜕 𝜕𝑓
partial derivative. More precisely, fxx = = ( )
𝜕𝑥 2 𝜕𝑥 𝜕𝑥
𝜕2 𝑓 𝜕 𝜕𝑓 𝜕2 𝑓 𝜕 𝜕𝑓 𝜕2 𝑓 𝜕 𝜕𝑓
fyy = = ( ), fxy = = ( ) and fyx = = ( ).
𝜕𝑦 2 𝜕𝑦 𝜕𝑦 𝜕𝑥𝜕𝑦 𝜕𝑦 𝜕𝑥 𝜕𝑦𝜕𝑥 𝜕𝑥 𝜕𝑦

Exercise 4.1
3 2 3
1. If 𝑓 (𝑥, 𝑦) = 𝑥 + 3𝑥 𝑦 + 𝑦 − 5, evaluate:
a. 𝑓(1,2)
Here, given function is: 𝑓 (𝑥, 𝑦) = 𝑥 3 + 3𝑥 2 𝑦 + 𝑦 3 − 5,
Putting 𝑥 = 1, 𝑎𝑛𝑑 𝑦 = 2,
𝑓 (1,2) = 13 + 3. 12 . 2 + 23 − 5.
= 10.
2. If 𝑓 (𝑥1 , 𝑥2 , 𝑥3 ) = 2𝑥1 + 3𝑥2 − 𝑥3 , evaluate:
a. 𝑓(2,3,1)
Here, given function is: If 𝑓(𝑥1 , 𝑥2 , 𝑥3 ) = 2𝑥1 + 3𝑥2 − 𝑥3 .
 Replacing 𝑥1 , 𝑥2 𝑎𝑛𝑑 𝑥3 by 2,3 and 1 respectively,
𝑓 (2,3,1) = 2.2 + 3.3 − 1=12.

3. An empirical formula by E.F. Dubois relates the surface area S of a human

body (in square meters) to its weight W (in kilograms) and its height H (in
centimeters). The formula, given by 𝑆 = 0.007184𝑊 0.425 𝐻 0.725 is used by
physiologists in metabolism studies. What is the surface area of a human
body that weighs 80 kg and has a height of 174 cm?
Solution:
Here, given surface area function is: 𝑆 = 0.007184𝑊 0.425 𝐻 0.725
Replacing W and H by 80 and 174,
𝑆 = 0.007184(80)0.425 (174).
= 1.948𝑚2
So, required surface area = 1.948𝑚2

4. For the production functions given below, derive the function in the form K = f(L)
for the isoquant representing the specified output level. Also, find the level of K
required to achieve the given output level if L = 100 (Assume that the fractions of a
unit of K and L can be used)
a. 𝑄 = 4𝐾 0.5 𝐿0.5 when Q = 40.
b. 𝑄 = 20𝐾 0.4 𝐿0.4 when Q = 180
c. 𝑄 = 0.3𝐾 0.4 𝐿0.6 when Q = 4.8
d. 𝑄 = 5𝐾 0.8 𝐿0.2 when K = 80
Solution:
a. Given function is: 𝑄 = 4𝐾 0.5 𝐿0.5 .
Putting 𝑄 = 40, we have: 4𝐾 0.5 𝐿0.5 = 40.
Or, 𝐾 0.5 𝐿0.5 = 10
Squaring on both sides, (Or, dividing each power by 0.5)
𝐾 0.5×2 𝐿0.5×2 = 102 .
Or, 𝐾𝐿 = 100
100
Or, 𝐾 = .
𝐿
Putting 𝐿 = 100, 𝐾 = 1.

a. Given function is: 𝑄 = 5𝐾 0.8 𝐿0.2 .

Putting 𝑄 = 80, we have: 5𝐾 0.8 𝐿0.2 = 80.
Or, 𝐾 0.8 𝐿0.2 = 16
Dividing each power by 0.8,
0.8 0.2 1
𝐾 0.8 𝐿0.8 = 160.8 .
Or, 𝐾𝐿0.25 = 32
32
Or, 𝐾 = 0.25 .
𝐿
Putting 𝐿 = 80, 𝐾 = 10.1193
6. Sketch some level curves of the following functions.
𝑌
a. 𝑓 (𝑥, 𝑦) = √4 − 𝑥 2 − 𝑦 2 for K=0,1,2.
Solution:
(0,2)
Here, given function is:
𝑓 (𝑥, 𝑦) = √4 − 𝑥 2 − 𝑦 2 for K=0,1,2.
For level curves, we take f(x, y) = K.
𝑋′ (−2,0) 𝑂 (2,0) 𝑋
√4 − 𝑥 2 − 𝑦 2 = 𝐾.
Squaring on both sides,
4 − 𝑥2 − 𝑦2 = 𝐾2. (0, −2)
2 2 2
Or, 𝑥 − 𝑦 = 4 − 𝐾 …………....(i).
Taking 𝐾 = 0, we get:
𝑥 2 − 𝑦 2 = 4.
It is a circle centered at origin and with radius 2 units which cuts X-axis at
(2,0) 𝑎𝑛𝑑 (−2,0) and Y-axis at (0, 2) 𝑎𝑛𝑑 (0, −2).
Putting K=1 in equation (i),
𝑥 2 − 𝑦 2 = 3.
It is a circle centered at origin and with radius √3 units.
Similarly, putting K=2 in equation (i),
𝑥 2 − 𝑦 2 = 0.
It is a circle centered at origin and with radius 0 unit.

Coefficients and Constant term of a Linear Function

Let us consider a linear cost function of two goods X and Y given by C(x, y) =
ax+by+c, where x and y are the quantities of the products X and Y respectively.
When x = 0, y = 0.
C(0, 0) =a.0+ b.0+c= c which is the fixed cost.
Now, C(x+1, y) = a(x + 1) + by + c
= ax + a + by + c……………(1)
Also, C(x, y) = ax + by +c………………….(2)
From (1) and (2),
Or, C(x+1, y)−C(x, y) = a
It means when x is increased by 1 unit keeping y constant, total cost is increased by
a.
In other words, coefficient of x represents the marginal cost of X.
Again, C(x, y + 1) = ax + b(y + 1) + c
= ax + by + b + c………….(3)
And C(x, y) = ax + by +c…………………………(4)
From (3) and (4),
Or, C(x, y+1)−C(x, y) = b
It means when y is increased by 1 unit keeping x constant, total cost is increased by
b. Coefficient of y represents the marginal cost of y.
Exercise 4.2
(Applications of Functions of two Variables in Economic and Business)

1. a. Annual sales of a product Z depends on the sales of related products X and Y. Each Rs. 1
thousand increase in sales of X causes Rs. 0.3 thousand increase in sales of Z and each Rs. 1
thousand increase in sales of Y causes Rs. 2.3 thousand decrease in sales of Z. Currently, each
of X, Y and Z are selling 50 thousands per month. Model the sales of Z by using a linear
function. Find the selling of Z if X and Y sells 15 thousand and 10 thousands respectively.
Solution:
Let the figures be measured in thousand.
According to question,
Z=0.3𝑋 − 2.3𝑌 + 𝐶 when, X= 50, Y = 50, Z = 50, we have
50=0.3 × 50−2.3 × 50+ C
or, 50=−100+ C
or, C=150
Thus, the required function is:
Z=0.3𝑋 − 2.3𝑌 +150.
Secondly, when X= 15, Y = 10, we have:
Z=0.3 × 15−2.3 × 10+ 150
Or, Z=131.5.
So, the required sales of Z is 131.5 thousands.

2.a. The cost per day to a family is given by C(x, y) = 8x + 3y, where C is cost in Rs., x is the
expenditure in vegetables and y is the expenditure in breakfast. If Rs. 120 is expended on
vegetables and Rs. 500 is expended on breakfast, what is the daily cost to the family?
Solution:
Here, C(x, y) =8x+3y
When x = Rs.120, y = Rs. 500
C(120, 500) = 8×120+3×500=Rs. 2460.
Hence, the daily cost to the family is Rs. 2460.

b. The utility function for two goods X and Y is u = x²y² and a consumer purchases 20 units
of X and 7 units of Y.
i. What is the level of utility for these two products? ii. If the consumer purchases 10 units of
X, how many units of Y must be purchased to maintain the same level of utility?
Solution
Here, u = x²y²
When x=20, y =7, u = (20)2 ×(7)²= 19,600.
When, u = 19600, x = 10, y = ?
19600 = (10)2 𝑦 2
19600
Or, 𝑦 2 = 100 = 196
So, y = 14.
Hence, 14 units of y should be purchased to maintain the same level of utility.

c. Given the utility function u(x, y) =4𝑥 0.6 𝑦 0.4 + 𝑥. If x = 32 and y = 243, find the level of
utility. Calculate the effect of increasing x by one unit and interpret the result.
Solution
Here, u(x, y) =4𝑥 0.6 𝑦 0.4 + 𝑥
When x = 32, y = 243
u (32, 243)= 4(32)0.6 (243)0.4 + 32
or, u(32, 243) = 320
Secondly, u(33,243)= 4(33)0.6 (243)0.4 + 33
Or, u(33, 243) = 326.367.
Now, u(33, 243)−u(32, 243)
=326.367−320 = 6.37
Hence, when x is increased by one unit then total utility also increases by 6.37.

d. A company's production function is given by P(x, y) = 𝐾𝑥 𝛼 𝑦1−𝛼 , where P stands for the
number of items produced per year, x is the number of employees, and y is the annual
operating budget. How many items will be produced per year by a company with 243
employees and an annual operating budget of Rs. 248,832 if K=100 and 𝛼 = 0.6?
Solution
Here, P(x, y) = 𝐾𝑥 𝛼 𝑦 1−𝛼
When x=243 and y=248,832, K=100 and 𝛼 = 0.6,
we get: P(243, 248,832)
= 100. (243)0.6 (248832)1−0.6
= 3,88,802
So, required
…………. number of items = 3,88,802.

3.a. The daily revenue of a company is given by the function R(x, y, z) = 12,000 − 0.01𝑥 −
0.03𝑦 − 0.02𝑧 + 0.00001𝑦𝑧, where x, y and z are the daily revenues of company A, B and C
respectively.
i. What is the company's daily revenue if company A, B and C made the revenue of Rs. 8,000,
Rs. 5,000 and Rs. 4,000 respectively.
ii. If company A and B each made daily revenue of Rs. 6,000, give an equation that shows the:
company's daily revenue depends on the revenue of company C.
Solution:
Here, given function is R(x, y, z) = 12,000 − 0.01𝑥 − 0.03𝑦 − 0.02𝑧 + 0.00001𝑦𝑧
i. Putting x=8,000, y=5,000 and z=4,000 respectively, we get
Company's daily revenue(R) = Rs.11890.
ii. Putting x=6000, y=6000, we have:
R = 12,000 − 0.01 × 6000 − 0.03 × 6000 − 0.02𝑧 + 0.00001 × 6000𝑧
What we can find from this last relation is R depends on z only which is the revenue of
company C.
4. a. The monthly cost (in dollars) to manufacture x bicycle and y motorcycle is given by the
function C(x, y) = 250,000+ 100x + 2500y. What is the marginal cost of a bicycle? Also, find
the marginal cost of a motorcycle.
Solution
Here, C(x, y) = 250,000+ 100x + 2500y
When, x = 1, y=1
C(1, 1) = 250,000+ 100 ×1 + 2500 × 1 = 252,600
Also, when, x = 2, y = 1
C(2, 1) = 250,000+ 100 x 2 + 2500 × 1 = 252,700
So, marginal cost of bicycle = C(2, 1) − C(1, 1) = 252,700 − 252,600 = 100
Secondly, when, x = 1, y=2
C(1, 2) = 250,000+ 100 × 1 + 2500 × 2 = 255,100
Marginal cost of a motorcycle = C(1, 2) − C(1, 1) = 255,100 − 252,600 = 2500

SOME IMPORTANT TERMINOLOGIES

Incremental Change or Small Changes Formula
If z = f(x,y), then the small change over z is denoted by Δ𝑧 and is given by Δ𝑧 =
𝜕𝑧 𝜕𝑧
Δ𝑥 + Δ𝑦.
𝜕𝑥 𝜕𝑦
Total Differential
𝜕𝑧 𝜕𝑧
The total differential of z is given by d𝑧 = d𝑥 + d𝑦.
𝜕𝑥 𝜕𝑦
Total Derivative
d𝑧 𝜕𝑧 d𝑥 𝜕𝑧 d𝑦
The total differential of z is given by = + .
𝑑𝑡 𝜕𝑥 𝑑𝑡 𝜕𝑦 𝑑𝑡
Implicit Differentiation:
𝑑𝑦 𝑓
= − 𝑥.
𝑑𝑥 𝑓𝑦

Exercise 4.3
1. Find the first order partial derivative of the function given below:
a. f(x,y) = 5x2y3.
Here, given function is: f(x,y) = 5x2y3.
Differentiating partially w.r.t. 'x', we have:
𝜕𝑓 𝜕(5𝑥 2 𝑦 3 ) 𝜕(𝑥 2 )
= = 5𝑦 3 = 5𝑦 3 . 2𝑥 = 10𝑥𝑦 3 . [Note: Here, 5 and y are constants]
𝜕𝑥 𝜕𝑥 𝜕𝑥
Similarly, differentiating partially w.r.t. 'y', we have:
𝜕𝑓 𝜕(5𝑥 2 𝑦 3 ) 𝜕(𝑦 3 )
= = 5𝑥 2 = 5𝑥 2 3𝑦 2 = 15𝑥 2 𝑦 2 . [Note: Here, 5 & x are konstants]
𝜕𝑦 𝜕𝑦 𝜕𝑦

c. Here, given function is: f(x,y) = x2 +2xy.

Differentiating partially w.r.t. 'x', we have:
𝜕𝑓 𝜕(𝑥 2 +2𝑥𝑦) 𝜕(𝑥 2 ) 𝜕(2𝑥𝑦) 𝜕(𝑥 2 ) 𝜕(𝑥)
= = + = + 2𝑦 = 2𝑥 + 2𝑦
𝜕𝑥 𝜕𝑥 𝜕𝑥 𝜕𝑥 𝜕𝑥 𝜕𝑥
Similarly, differentiating partially w.r.t. 'y', we have:
 𝜕𝑓 𝜕(𝑥 2 +2𝑥𝑦) 𝜕(𝑥 2 ) 𝜕(2𝑥𝑦) 𝜕(𝑥 2 ) 𝜕(𝑦)
= = + = + 2𝑥 = 0 + 2𝑥 = 2𝑥.
𝜕𝑦 𝜕𝑦 𝜕𝑦 𝜕𝑦 𝜕𝑦 𝜕𝑦
d. Here, given function is: f(x,y) = ln x + 3.lny
Differentiating partially w.r.t. 'x', we have:
𝜕(ln 𝑥 +3 ln 𝑦) 𝜕(ln 𝑥) 𝜕(3 ln 𝑦) 1 1
𝑓𝑥 = = + = +0= .
𝜕𝑥 𝜕𝑥 𝜕𝑥 𝑥 𝑥
Similarly, differentiating partially w.r.t. 'y', we have:
𝜕(ln 𝑥 +3 ln 𝑦) 𝜕(ln 𝑥) 𝜕(ln 𝑦) 1 3
𝑓𝑦 = = +3 = 0 + 3. = .
𝜕𝑦 𝜕𝑦 𝜕𝑦 𝑦 𝑦
e. Here, given function is: f(x,y) = (x – y)5
Differentiating partially w.r.t. 'x', we have:
𝜕(x−y)5 𝜕(x−y)5 𝜕(𝑥−𝑦)
𝑓𝑥 = = .
𝜕𝑥 𝜕(𝑥−𝑦) 𝜕(𝑥)
𝜕𝑥 𝜕𝑦
= 5(𝑥 − 𝑦 ( − ). )4
𝜕𝑥 𝜕𝑥
= 5(𝑥 − 𝑦 )4 (1 − 0).
= 5(𝑥 − 𝑦 )4
Differentiating partially w.r.t. 'y', we have:
𝜕(x−y)5 𝜕(x−y)5 𝜕(𝑥−𝑦)
𝑓𝑦 = = .
𝜕𝑦 𝜕(𝑥−𝑦) 𝜕(𝑦)
𝜕𝑥 𝜕𝑦
= 5(𝑥 − 𝑦 )4 ( − ).
𝜕𝑦 𝜕𝑦
= 5(𝑥 − 𝑦 )4 (0 − 1).
= −5(𝑥 − 𝑦)4

2. Find the first order partial derivatives of the function at the given points:
a. Given function is: 𝑓(𝑥, 𝑦) = 𝑥 3 𝑦 4 − 𝑥 2 + 𝑦 3 𝑎𝑡 (1,0)
Differentiating partially w.r.t. 'x', we have:
𝜕(𝑥 3 𝑦 4 −𝑥 2 +𝑦 3 )
𝑓𝑥 =
𝜕𝑥
𝜕(𝑥 3 𝑦 4 ) 𝜕(𝑥 2 ) 𝜕(𝑦 3 )
= − + .
𝜕𝑥 𝜕𝑥 𝜕𝑥
= 𝑦 4 . 3𝑥 2 − 2𝑥 + 0.
= 3𝑥 2 𝑦 4 − 2𝑥.
Similarly, differentiating partially w.r.t. 'y', we have:
𝜕(𝑥 3 𝑦 4 −𝑥 2 +𝑦 3 )
𝑓𝑦 = .
𝜕𝑦
𝜕(𝑥 3 𝑦 4 ) 𝜕(𝑥 2 ) 𝜕(𝑦 3 )
= − + .
𝜕𝑦 𝜕𝑦 𝜕𝑦
= 𝑥 3 . 4𝑦 3 − 0 + 3𝑦 2 .
= 4𝑥 3 𝑦 3 + 3𝑦 2 .
Thus, we have: 𝑓𝑥 (𝑥, 𝑦) = 3𝑥 2 𝑦 4 − 2𝑥 and
𝑓𝑦 (𝑥, 𝑦) = 4𝑥 3 𝑦 3 + 3𝑦 2 .
Now, putting x =1 and y = 0,
we have: 𝑓𝑥 (1,0) = 3(1)2 × 04 − 2 × 1 = −2.
𝑓𝑦 (1,0) = 4. 13 × 03 + 3 × 02 = 0.
3.b. Find 𝑓𝑥𝑦 when 𝑓 (𝑥, 𝑦) = 2𝑥 2 𝑦 + 3𝑥𝑦 3
Solution: Given function is : 𝑓 (𝑥, 𝑦) = 2𝑥 2 𝑦 + 3𝑥𝑦 3
Diff. partially w.r.t. 'x', we have:
𝜕(2𝑥 2 𝑦+3𝑥𝑦 3 ) 𝜕(2𝑥 2 𝑦) 𝜕(3𝑥𝑦 3 )
𝑓𝑥 = = +
𝜕𝑥 𝜕𝑥 𝜕𝑥
𝜕(𝑥 2 ) 𝜕(𝑥)
= 2𝑦 + 3𝑦 3 .
𝜕𝑥 𝜕𝑥
= 2𝑦. 2𝑥 + 3𝑦 . 1 = 4𝑥𝑦 + 3𝑦 3 .
3

Thus, 𝑓𝑥 = 4𝑥𝑦 + 3𝑦 3 .
Now, partially diff. w.r.t. 'y', we get:
𝜕(𝑓𝑥 ) 𝜕(4𝑥𝑦+3𝑦 3 ) 𝜕(4𝑥𝑦) 𝜕(3𝑦 3 )
𝑓𝑥𝑦 = = = + .
𝜕𝑦 𝜕𝑦 𝜕𝑦 𝜕𝑦
𝜕(𝑦) 𝜕(3𝑦 3 )
Or, 𝑓𝑥𝑦 = 4𝑥 + = 4𝑥 + 9𝑦 2 .
𝜕𝑦 𝜕𝑦
4.b. Find all possible partial derivatives of the function 𝑄 = 10𝐿0.8 𝐾 0.2
Solution: Here, given function is: 𝑄 = 10𝐿0.8 𝐾 0.2
𝜕(10𝐿0.8 𝐾0.2 ) 𝜕(𝐿0.8 )
Firstly, diff. partially w.r.t. 'L', we get: 𝑄𝐿 = = 10𝐾 0.2
𝜕𝐿 𝜕𝐿
Or, 𝑄𝐿 = 10𝐾 0.2 × 0.8𝐿−0.2 = 8𝐾 0.2 𝐿−0.2 ………..(i)
Secondly, diff. partially (i) w.r.t. 'L', we get:
𝜕(8𝐾0.2 𝐿−0.2 ) 𝜕(𝐿−0.2 )
𝑄𝐿𝐿 = = 8𝐾 0.2
𝜕𝐿 𝜕𝐿
= 8𝐾 0.2 (−0.2)𝐿−1.2 = −1.6𝐾 0.2 𝐿−1.2 .
Thirdly, diff. partially (i) w.r.t. 'K', we get:
𝜕(8𝐾0.2 𝐿−0.2 ) 𝜕(𝐾0.2 )
𝑄𝐿𝐾 = = 8𝐿−0.2
𝜕𝐾 𝜕𝐿
= 8𝐿−0.2 (0.2)𝐾 −0.8 = 1.6𝐾 −0.8 𝐿−0.2 .
𝜕(10𝐿0.8 𝐾0.2 ) 𝜕(𝐾0.2 )
Similarly, 𝑄𝐾 = = 10𝐿0.8
𝜕𝐾 𝜕𝐾
0.8 −0.8 −0.8 0.8
Or, 𝑄𝐾 = 10𝐿 × 0.2𝐾 = 2𝐾 𝐿 ………..(ii)
𝜕(2𝐾−0.8 𝐿0.8 )
Diff. partially (ii) w.r.t. 'K', 𝑄𝐾𝐾 = .
𝜕𝐾
𝜕(𝐾 −0.8 )
= 2𝐿0.8 = 2𝐿0.8 (−0.8)𝐾 −1.8 = −1.6𝐾 −1.8 𝐿0.8 .
𝜕𝐾
Lastly, diff. partially (ii) w.r.t. 'K',
𝜕(2𝐾−0.8 𝐿0.8 ) 𝜕(𝐿0.8 )
𝑄𝐾𝐿 = = 2𝐾 −0.8 .
𝜕𝐿 𝜕𝐿
−0.8 −0.2 −0.8 −0.2
= 2𝐾 × 0.8𝐿 = 1.6𝐾 𝐿 .
4.c. Given function is: 𝑧 = ln 5𝑥 + 3𝑥. ln 𝑦.
𝜕(ln 5𝑥+3𝑥.ln 𝑦) 𝜕(ln 5𝑥) 𝜕(3𝑥.ln 𝑦)
Now, 𝑧𝑥 = = +
𝜕𝑥 𝜕𝑥 𝜕𝑥
1 1
= . 5 + ln 𝑦. 3 = + 3. ln 𝑦.
5𝑥 𝑥
𝜕(𝑥 −1 +3.ln 𝑦) 1
Secondly, 𝑧𝑥𝑥 = = −1𝑥 −2 + 0 = − 2 .
𝜕𝑥 𝑥
𝜕(𝑥 −1 +3.ln 𝑦) 1 3
Thirdly, 𝑧𝑥𝑦 = = 0 + 3. = .
𝜕𝑦 𝑦 𝑦
𝜕(ln 5𝑥+3𝑥.ln 𝑦) 𝜕(ln 5𝑥) 𝜕(3𝑥.ln 𝑦)
Also, 𝑧𝑦 = = +
𝜕𝑦 𝜕𝑦 𝜕𝑦
1 3𝑥
= 0 + 3𝑥. = .
𝑦 𝑦
3𝑥
𝜕( ) 𝜕(𝑦 −1 ) 3𝑥
𝑦
𝑧𝑦𝑦 = = 3𝑥. = 3𝑥 (−1)𝑦 −2 = − .
𝜕𝑦 𝜕𝑦 𝑦2
3𝑥
𝜕( ) 3 𝜕(𝑥) 3
𝑦
𝑧𝑦𝑥 = = . = .
𝜕𝑥 𝑦 𝜕𝑥 𝑦
0.5 0.5 𝜕𝑄 𝜕𝑄
6.a. If 𝑄 = 𝐿 𝐾 , show that 𝑄 = 𝐿 + 𝐾 .
𝜕𝐿 𝜕𝐾
0.5 0.5
Proof: Here, 𝑄 = 𝐿 𝐾 .
Firstly, diff. partially w.r.t. 'L', we get:
𝜕(𝐿0.5 𝐾 0.5 ) 0.5
𝜕(𝐿0.5 )
𝑄𝐿 = =𝐾 = 𝐾 0.5 × 0.5𝐿−0.5 = 0.5𝐾 0.5 𝐿−0.5 .
𝜕𝐿 𝜕𝐿
Secondly, diff. partially w.r.t. 'K', we get:
𝜕(𝐿0.5 𝐾 0.5 ) 𝜕(𝐾 0.5 )
𝑄𝐿 = = 𝐿0.5 = 𝐿0.5 × 0.5𝐾 −0.5 = 0.5𝐾 −0.5 𝐿0.5 .
𝜕𝐾 𝜕𝐾
𝜕𝑄 𝜕𝑄
Thus, R.H.S. = 𝐿 + 𝐾 = 𝐿 × 0.5𝐾 0.5 𝐿−0.5 + 𝐾 × 0.5𝐾 −0.5 𝐿0.5 .
𝜕𝐿 𝜕𝐾
= 0.5𝐾 0.5 𝐿0.5 + 0.5𝐾 0.5 𝐿0.5 = 𝐿0.5 𝐾 0.5 = 𝑄 = 𝐿. 𝐻. 𝑆.

𝜕2 𝑧 𝜕2 𝑧
7.c. Verify the relation = when 𝑧 = 120(1 + 𝑒 −0.8𝑥𝑦 )
𝜕𝑥𝜕𝑦 𝜕𝑦𝜕𝑥
Proof: Here, given function is: 𝑧 = 120(1 + 𝑒 −0.8𝑥𝑦 )
Firstly, diff. partially w.r.t. 'x', we get:
𝜕{120(1+𝑒 −0.8𝑥𝑦 )} 𝜕(1+𝑒 −0.8𝑥𝑦 )
𝑧𝑥 = = 120 .
𝜕𝑥 𝜕𝑥
𝜕(𝑒 −0.8𝑥𝑦 ) 𝜕(−0.8𝑥𝑦)
= 120 [0 + . ] = 120{𝑒 −0.8𝑥𝑦 × (−0.8𝑦)}.
𝜕(−0.8𝑥𝑦) 𝜕𝑥
−0.8𝑥𝑦
So, 𝑧𝑥 = −96𝑦𝑒 .
Diff. partially w.r.t. 'y',
𝜕(−96𝑦𝑒 −0.8𝑥𝑦 ) 𝜕(𝑦.𝑒 −0.8𝑥𝑦 )
𝑧𝑥𝑦 = = −96 .
𝜕𝑦 𝜕𝑦
𝜕𝑦 𝜕(𝑒 −0.8𝑥𝑦 )
= −96 [𝑒 −0.8𝑥𝑦 . + 𝑦. ].
𝜕𝑦 𝜕𝑦
= −96[𝑒 −0.8𝑥𝑦 − 0.8𝑥𝑦. 𝑒 . −0.8𝑥𝑦 ]
−0.8𝑥𝑦
= −96𝑒 (1 − 0.8𝑥𝑦)…………(1)
Secondly, diff. partially w.r.t. 'y', we get:
𝜕{120(1+𝑒 −0.8𝑥𝑦 )} 𝜕(1+𝑒 −0.8𝑥𝑦 )
𝑧𝑦 = = 120 .
𝜕𝑦 𝜕𝑦
𝜕(𝑒 −0.8𝑥𝑦 ) 𝜕(−0.8𝑥𝑦)
= 120 [0 + . ] = 120{𝑒 −0.8𝑥𝑦 × (−0.8𝑥)}.
𝜕(−0.8𝑥𝑦) 𝜕𝑦
−0.8𝑥𝑦
𝑆𝑜, 𝑧𝑦 = −96𝑥𝑒 . Diff. partially w.r.t. 'x',
𝜕(−96𝑥𝑒 −0.8𝑥𝑦 ) 𝜕(𝑥.𝑒 −0.8𝑥𝑦 )
𝑧𝑦𝑥 = = −96 .
𝜕𝑥 𝜕𝑥
−0.8𝑥𝑦
𝜕𝑥 𝜕(𝑒 −0.8𝑥𝑦 )
= −96 [𝑒 . + 𝑥. ]
𝜕𝑥 𝜕𝑥
= −96[𝑒 −0.8𝑥𝑦 − 0.8𝑥𝑦. 𝑒 −0.8𝑥𝑦 ]
= −96𝑒 −0.8𝑥𝑦 (1 − 0.8𝑥𝑦)………….(2)
𝜕2 𝑧 𝜕2 𝑧
From (1) and (2), we find that: 𝑧𝑥𝑦 = 𝑧𝑦𝑥 i.e. = .
𝜕𝑥𝜕𝑦 𝜕𝑦𝜕𝑥
8. a. Find the differential dz if 𝑧 = 𝑥 2 + 𝑦 2 .
Here, given function is: 𝑧 = 𝑥 2 + 𝑦 2 .
Firstly, diff. partially w.r.t. 'x', we get:
𝜕(𝑥 2 +𝑦 2 )
𝑧𝑥 = = 2𝑥.
𝜕𝑥
Diff. partially w.r.t. 'y', we get:
𝜕(𝑥 2 +𝑦 2 )
𝑧𝑥 = = 2𝑦.
𝜕𝑦
Now, differential 𝑑𝑥 = 𝑧𝑥 𝑑𝑥 + 𝑧𝑦 𝑑𝑦 = 2𝑥𝑑𝑥 + 2𝑦𝑑𝑦.

9. Find the approximate percentage change in z in the following conditions:

a. 𝑧 = 𝑥 0.8 𝑦 0.2 , x increases by 3% and y decreases by 2%.
Here, given function is: 𝑧 = 𝑥 0.8 𝑦 0.2
By the meaning of 3% increment in x, we have:
3
dx = × 𝑥 = 0.03𝑥.
100
Also, y decreases by 2% means that
2
dy = − × 𝑦 = −0.02𝑦
100
Further, 𝑧𝑥 = 0.8𝑥 −0.2 𝑦 0.2 , 𝑧𝑦 = 0.2𝑥 0.2 𝑦 −0.8 .
Using formula, 𝑑𝑧 = 𝑧𝑥 𝑑𝑥 + 𝑧𝑦 𝑑𝑦
= 0.8𝑥 −0.2 𝑦 0.2 × 0.03𝑥 + 0.2𝑥 0.2 𝑦 −0.8 (−0.02𝑦).
= 0.024𝑥 0.8 𝑦 0.2 − 0.004𝑥 0.2 𝑦 0.2 = 0.02𝑥 0.8 𝑦 0.2
𝑑𝑧
So, required % change = × 100%
𝑧
0.02𝑥 0.8 𝑦 0.2
= × 100% = 2%.
𝑥 0.8 𝑦 0.2
10 . c. Estimate the change in 𝑧 = 𝑥 2 𝑦 2 − 𝑥 4 + 3𝑦 if x increases from 1 to 1.2 and y
decreases from 1 to 0.9.
Here, 𝑧 = 𝑥 2 𝑦 2 − 𝑥 4 + 3𝑦
Now, change in x = Δ𝑥 = 1.2 − 1 = 0.2 and
change in y = Δy = 0.9 − 1 = −0.1.
𝜕(𝑥 2 𝑦 2 −𝑥 4 +3𝑦)
Now, 𝑧𝑥 = = 2𝑥𝑦 2 − 4𝑥 3
𝜕𝑥
𝜕(𝑥 2 𝑦 2 −𝑥 4 +3𝑦)
and 𝑧𝑦 = = 2𝑦𝑥 2 + 3.
𝜕𝑦
Also, initial values of x = 1 and y = 1.
Now, Δz = 𝑧𝑥 . Δx + 𝑧𝑦 . Δy
= (2𝑥𝑦 2 − 4𝑥 3 ) × 0.2 + (2𝑦𝑥 2 + 3) × (−0.1)
= (2 × 1 × 12 − 4 × 13 ) × 0.2 + (2 × 1 × 12 + 3) × (−0.1)
= −0.4 − 0.5 = −0.9
So, the estimated change in z = −0.9.

11. a. Using x skilled workers and y unskilled workers, a factory can produce Q(x,y)
= 25𝑥𝑦 2 units per day. Currently, there are 30 skilled and 40 unskilled workers on
the job. Using partial derivatives, evaluate
i. By how much will the daily production level change if 1 more skilled worker is
added to the current work force?
ii. By how much will the daily production level change if 1 more unskilled worker
is added to the current work force?
iii. What would the factory manager do to increase the production?
Solution:
i. Here, given production function is: Q(x,y) = 25𝑥𝑦 2 .
Let x denotes the number of skilled workers whereas y denoted that of unskilled
workers.
Now, change in x = Δ𝑥 = 1 and
change in y = Δy = 0.
𝜕(25𝑥𝑦 2 )
So, 𝑄𝑥 = = 25𝑦 2 .
𝜕𝑥
𝜕(25𝑥𝑦 2 )
and 𝑄𝑦 = = 50𝑥𝑦.
𝜕𝑦
Also, initial values of x = 30 and y = 40.
Now, Δ𝑄 = 𝑄𝑥 . Δx + 𝑄𝑦 . Δy
=25𝑦 2 . 1 + 50𝑥𝑦. 0
=25× 402 = 40000.
ii. In this case, change in x i.e. Δ𝑥 = 0
and change in y i.e. Δy = 1.
𝜕(25𝑥𝑦 2 )
So, 𝑄𝑥 = = 25𝑦 2 .
𝜕𝑥
𝜕(25𝑥𝑦 2 )
and 𝑄𝑦 = = 50𝑥𝑦.
𝜕𝑦
Also, initial values of x = 30 and y = 40.
Now, Δ𝑄 = 𝑄𝑥 . Δx + 𝑄𝑦 . Δy
=25𝑦 2 . 0 + 50𝑥𝑦. 1
=50 × 30 × 40 × 1.=60000.
iii. Since Δ𝑄 is greater in the latter case, the factory manager should increase
unskilled labours to increase the production level.

c. A firm estimates that the number of units it sells each year is a function of the
advertising expenditures for TV and radio. The function expressing the relationship
is 𝑍 = 2000𝑥 + 5,000𝑦 − 20𝑥 2 − 10𝑦 2 − 50𝑥𝑦, where Z equals the number of units
sold, x equals the amount spent on TV advertising and y equals the amount spent on
radio advertising. (The latter two variables expressed in $ 1000s). The firm is
presently allocating $ 50,000 to TV and $ 30,000 to radio.
i. What are annual sales expected to equal?
ii. Using partial derivatives estimate the effect on annual sales if an additional $1000
is allocated to TV.
iii. Using partial derivatives estimate the effect on annual sales if an additional
$1000 is allocated to radio.
iv. Where does it seem that $1000 is better spent?
Solution:
i. Here, given function is: 𝑍 = 2000𝑥 + 5,000𝑦 − 20𝑥 2 − 10𝑦 2 − 50𝑥𝑦.
Putting x=50 and y=30 (since these are in thousands) we get:
Annual sales (Z)=2000 × 50 + 5,000 × 30 − 20(50)2 − 10(30)2 − 50 × 50 × 30.
=1,16000.
ii. Now, change in x = Δ𝑥 = 1 (in thousand)
change in y = Δy = 0.
Also, initial values of x = 50 and y = 30.
Differentiating partially w.r.t. 'x',
𝜕(2000𝑥+5,000𝑦−20𝑥 2 −10𝑦 2 −50𝑥𝑦)
𝑍𝑥 = .
𝜕𝑥
=2000 − 40𝑥 − 50𝑦
=2000 − 40 × 50 − 50 × 30 = −1500
Differentiating partially w.r.t. 'y',
𝜕(2000𝑥+5,000𝑦−20𝑥 2 −10𝑦 2 −50𝑥𝑦)
𝑍𝑦 = .
𝜕𝑦
=5000 − 20𝑦 − 50𝑥
=5000 − 20 × 30 − 50 × 50 = 1900.
Now, Δ𝑍 = 𝑍𝑥 . Δx + 𝑍𝑦 . Δy
=(−1500) × 1 + 0 = −1500.
iii. Now, change in x = Δ𝑥 = 0.
change in y = Δy = 1.
Also, initial values of x = 50 and y = 30.
Now, Δ𝑍 = 𝑍𝑥 . Δx + 𝑍𝑦 . Δy
=0 + (1900) × 1 = 1900.
iv. Since from the latest calculation, we found that value of Δ𝑍 is greater in the case
when an additional $1000 is allocated to radio, the expenditure on radio is
recommended.
𝑑𝑦
12. Use implicit differentiation to find of the following functions.
𝑑𝑥
a. 𝑥 2 − 𝑦 2 = 36.
Here, given equation is: 𝑥 2 − 𝑦 2 = 36.
Or, 𝑥 2 − 𝑦 2 − 36 = 0.
Let, 𝑓 = x 2 − 𝑦 2 − 36.
Differentiating partially w.r.t. 'x',
𝜕(𝑥 2 −𝑦 2 −36)
𝑓𝑥 = .
𝜕𝑥
=2𝑥
Differentiating partially w.r.t. 'y',
𝜕(𝑥 2 −𝑦 2 −36)
𝑓𝑦 = .
𝜕𝑥
=−2𝑦
Using formula,
𝑑𝑦 𝑓 2𝑥 𝑥
=− 𝑥=− = .
𝑑𝑥 𝑓𝑦 −2𝑦 𝑦

c. 𝑥 3 + 4𝑥𝑦 − 𝑦 3 = 0 at (1,2).
Here, given equation is: 𝑥 3 + 4𝑥𝑦 − 𝑦 3 = 0.
Let, 𝑓 = 𝑥 3 + 4𝑥𝑦 − 𝑦 3 = 0.
Differentiating partially w.r.t. 'x',
𝜕(𝑥 3 +4𝑥𝑦−𝑦 3 )
𝑓𝑥 = .
𝜕𝑥
2
=3𝑥 + 4𝑦
Differentiating partially w.r.t. 'y',
𝜕(𝑥 3 +4𝑥𝑦−𝑦 3 )
𝑓𝑦 = .
𝜕𝑦
=4𝑥 − 3𝑦 2
Using formula,
𝑑𝑦 𝑓𝑥 3𝑥 2 +4𝑦
=− =− .
𝑑𝑥 𝑓𝑦 4𝑥−3𝑦 2
3.12 +4.2 11
=− = .
4.1−3.22 8

Price elasticity of Demand

In this topic, what we assume that the quantity (Q) of a good demanded depends on its price
(P), the price of an alternative good (PA) and the consumer's income. In this light, we can
express 𝑄 = 𝑓(𝑃, 𝑃𝐴 , 𝑌).
Mathematically, price elasticity of demand
𝜕𝑄
𝜕𝑄% ×100 𝜕𝑄 𝑃
𝑄
𝜀𝑑 = 𝜕𝑃% = 𝜕𝑃 = . [where 𝑃𝐴 = 𝑘 𝑎𝑛𝑑 𝑌 = 𝑘]
×100 𝜕𝑃 𝑄
𝑃

Cross Price elasticity of Demand

𝜕𝑄 𝑃𝐴
Cross price elasticity of demand (𝜀𝑃𝐴 ) = 𝜕𝑃 . [where 𝑃 = 𝑘 and 𝑌 = 𝑘]
𝐴 𝑄
𝜕𝑄
Depending on the sign of 𝜕𝑃 , we draw the following conclusions.
𝐴
Note: In the following table we assume that 𝜕𝑃𝐴 is always positive.

Situation Quantity demanded Goods are called …….

𝜕𝑄
𝜕𝑃𝐴
>0 increases Substitute or competitive
𝜕𝑄
𝜕𝑃𝐴
<0 decreases complementary
𝜕𝑄
𝜕𝑃𝐴
=0 Remains constant unrelated

Income Elasticity of Demand

The income elasticity of demand is denoted by 𝜀𝑦 and defined by
𝜕𝑄
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝜕𝑄% ×100 𝜕𝑄 𝑌
𝑄
𝜀𝑦 = = = 𝜕𝑌 = . [𝑃𝐴 and 𝑃 are constant.]
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 ∆𝑌% ×100 𝜕𝑌 𝑄
𝑌
In the following table we assume that 𝜕𝑌 is positive. i.e. income of consumer increases.

Situation Quantity demanded Goods are called …..

𝜕𝑄
>𝟎 increases Superior as compared to the alternative goods
𝜕𝑌
𝜕𝑄
<𝟎 decreases Inferior as compared to the alternative goods
𝜕𝑌

Utility Functions
Utility function describes utility as a function of the goods consumed. Let, x and y be the
number of goods of X and Y respectively to be consumed, then the total utility function is
denoted by U and defined by 𝑈 = 𝑓(𝑥, 𝑦).
A special type of utility function often used in economic analysis is the Cobb-Douglas utility
function which is expressed in general form by 𝑈 = 𝐴𝑥 𝛼 𝑦 𝛽 , where A is a constant and
0 < 𝛼 < 1, 0 < 𝛽 < 1, x > 0, y > 0,

Marginal Utility
Let 𝑈 = 𝑓(𝑥, 𝑦).
𝜕𝑈
The marginal utility of good X = 𝜕𝑥
𝜕𝑈
The marginal utility of good Y = 𝜕𝑦
𝜕𝑈 𝜕𝑈
The change Δ𝑈 is given by 𝛥𝑈 = 𝛥𝑥 + 𝛥𝑦
𝜕𝑥 𝜕𝑦
In order to find approximate change we use the following formula:
𝜕𝑈 𝜕𝑈
𝑑𝑈 = 𝜕𝑥 𝑑𝑥 + 𝜕𝑦 𝑑𝑦.
Or, 𝑑𝑈 = 𝑈𝑥 𝑑𝑥 + 𝑈𝑦 𝑑𝑦.

Indifference Curve (Graph of level curves of Utility function.)

The graph of the utility function for all combinations of the vales of x and y giving the same
utility is known as the indifference curve. In other words, the graph of the utility function
given by 𝑈(𝑥, 𝑦) = 𝑘 (constant) is known as indifference curve.

Marginal Rate of Substitution (MRS)

𝑑𝑦
The slope 𝑑𝑥 of indifference curve is known as Marginal Rate of Substitution (MRS)
Mathematically,
𝑑𝑦 𝑈 𝑀𝑈
MRS = 𝑑𝑥 = 𝑈𝑥 = 𝑀𝑈𝑥 where 𝑀𝑈𝑥 and 𝑀𝑈𝑦 are marginal utilities of goods X and Y
𝑦 𝑦
respectively.
Marginal Production Functions
Let, 𝑄 = 𝑓(𝐿, 𝐾) be a production function .
𝜕𝑄
Marginal Product of Labour: 𝑀𝑃𝐿 = .
𝜕𝐿
𝜕𝑄
Marginal Product of Capital: 𝑀𝑃𝐾 = .
𝜕𝐾
𝜕𝑄 𝜕𝑄
The change in Q is given by 𝛥𝑄 = 𝛥𝐿 + 𝛥𝐾.
𝜕𝐿 𝜕𝐾
For approximate change, we use the differential form:
𝜕𝑄 𝜕𝑄
𝑑𝑄 = 𝜕𝐿 𝑑𝐿 + 𝜕𝐾 𝑑𝐾 or, 𝑑𝑄 = 𝑄𝐿 𝑑𝐿 + 𝑄𝐾 𝑑𝐾.

Isoquants (Graph of Level Curves of Production Function.)

The graph of the production function for all combinations of the vales of L and K giving the
same production is known as the isoquant. In other words, the graph of the utility function
given by 𝑄(𝐿, 𝐾) = 𝑐 (constant) is known as isoquant.

Marginal Rate of Technical Substitution (MRTS)

𝑑𝐾
The slope of isoquant 𝑑𝐿 is known as Marginal Rate of Technical Substitution (MRTS)
𝑑𝐾 𝑄 𝑀𝑃
Mathematically, MRTS = 𝑑𝐿 = 𝑄 𝐿 = 𝑀𝑃 𝐿
𝐾 𝐾
where 𝑀𝑃𝐿 and 𝑀𝑃𝐾 are marginal products of labour and capital respectively.

Exercise: 4.4
1. a. Given the demand function Q=12−3P, where P=3, find the price elasticity of
demand.
Solution:
Here, demand function is: Q=12−3P………..(i)
Putting P=3 in (i), we get: Q=3.
Differentiating partially eqn. (i) w.r.t. 'P',
𝜕𝑄
= −3.
𝜕𝑃
𝑃 𝜕𝑄
Now, price elasticity of demand (𝜀𝑑 ) = .
𝑄 𝜕𝑃
3
= . (−3) = −3.
3

2. a. The demand function for good A is given by 𝑄𝐴 = 200 − 4𝑃𝐴 + 𝑌 + 0.5𝑃𝐵 . Find
the price elasticity of demand at 𝑃𝐴 = 6, 𝑌 = 500 and 𝑃𝐵 = 10.
Solution:
Here, demand function is: 𝑄𝐴 = 200 − 4𝑃𝐴 + 𝑌 + 0.5𝑃𝐵 ………..(i)
Putting 𝑃𝐴 = 6, 𝑌 = 500 and 𝑃𝐵 = 10 in (i), we get: 𝑄𝐴 =681.
Differentiating partially eqn. (i) w.r.t. 𝑃𝐴 ,
𝜕𝑄𝐴 𝜕(200−4𝑃𝐴 +𝑌+0.5𝑃𝐵 )
= .
𝜕𝑃𝐴 𝜕𝑃𝐴
∂QA
Or, = −4.
∂PA
𝑃A 𝜕𝑄𝐴
Now, price elasticity of demand (𝜀𝑑 ) = .
𝑄A 𝜕𝑃𝐴
6
= . (−4) = −0.0352.
681
3. a. Given the demand function for good A is given by 𝑄𝐴 = 100 − 2𝑃𝐴 + 0.5𝑌 + 0.3𝑃𝐵
where, PA = 6, Y= 500 and PB =10. Find the
i) price elasticity of demand,
ii) cross price elasticity of demand and
iii) income elasticity of demand.
Solution:
i) Here, demand function is: 𝑄𝐴 = 100 − 2𝑃𝐴 + 0.5𝑌 + 0.3𝑃𝐵 ………..(i)
Putting 𝑃𝐴 = 6, 𝑌 = 500 and 𝑃𝐵 = 10 in (i), we get:
𝑄𝐴 =341.
Differentiating partially eqn. (i), The combination as such 𝑃𝐴 𝑃𝐵
𝜕𝑄𝐴 𝜕(100−2𝑃𝐴 +0.5𝑌+0.3𝑃𝐵 )
= . QB and PA is discarded as
𝜕𝑃𝐴 𝜕𝑃𝐴 𝑄𝐴 𝑄𝐵
∂QA QB is not available here.
Or, = −2.
∂PA
PA 𝜕𝑄𝐴
Now, price elasticity of demand (𝜀𝑑 ) = .
QA 𝜕𝑃𝐴
6
= . (−2) = −0.0352
341
PB 𝜕𝑄𝐴
ii) Cross price elasticity of demand (𝜀𝑃𝐵 ) = . We need to find
QA 𝜕𝑃𝐵
10 𝜕(100−2𝑃𝐴 +0.5𝑌+0.3𝑃𝐵 ) derivative w.r.t. the
= × price of alternative
341 𝜕𝑃𝐵
10 good. Here, it is PB
= × 0.3 = 0.0088.
341
Y 𝜕(𝑄𝐴 )
iii) Income elasticity of demand (𝜀𝑌 ) = .
QA 𝜕𝑌
500 𝜕(100−2𝑃𝐴 +0.5𝑌+0.3𝑃𝐵 )
= ×
341 𝜕𝑌
500
= × 0.5 = 0.7331.
341

c. Given the demand function: 𝑄 = 100 − 2𝑃 + 𝑃𝐴 + 0.1𝑌, where - price of goods P

= 10, price of alternative goods 𝑃𝐴 = 12 and income of consumer Y = 1000 find the
i. Price-elasticity of demand
ii. Cross-price elasticity of demand
iii. Income elasticity of demand
iv. What happens to demand when Y increases by 10%?
Solution:
Here, demand function is: 𝑄 = 100 − 2𝑃 + 𝑃𝐴 + 0.1𝑌
Putting P=10, 𝑃𝐴 = 12 and Y=1000, we have:
 𝑄 = 100 − 2 × 10 + 12 + 0.1 × 1000.
Or, Q=192.
P 𝜕𝑄
i. Price elasticity of demand (𝜀𝑑 ) = .
Q 𝜕𝑃
P 𝜕(100−2𝑃+ 𝑃𝐴 + 0.1𝑌)
= .
Q 𝜕𝑃
10
= . (−2) = −0.1042.
192
P𝐴 𝜕𝑄
ii. Cross price elasticity of demand (𝜀𝑃𝐴 ) = .
Q 𝜕𝑃𝐴
12 𝜕(100−2𝑃+ 𝑃𝐴 + 0.1𝑌)
= ×
192 𝜕𝑃𝐴
12
= × 1 = 0.0625.
192
Y 𝜕𝑄
iii. Income elasticity of demand (𝜀𝑌 ) = .
Q 𝜕𝑌
1000 𝜕(100−2𝑃+ 𝑃𝐴 + 0.1𝑌)
= ×
192 𝜕𝑌
1000
= × 0.1 = 0.5208.
192

iv. Given that % change in income (𝜕𝑌)= 10%.

% change in quantity demanded
Income elasticity of demand (εY ) =
% change in income
% change in quantity demanded
Or, 0.5208= .
10
Or, % change in quantity demanded = 0.5208 × 10
Or, % change in quantity demanded = 5.208%.

1 3
4. a. The utility function is given by U(x, y) = 𝑥 4 𝑦 4 . Find the marginal utilities when x
= 16 and y = 81. Hence, estimate the change in utility when x decreases by 1 unit and
y increases by 1 unit.
Solution:
1 3
Here, utility function is given by U(x, y) = 𝑥 4 𝑦 4
1 3
𝜕𝑥 4 𝑦 4
Now, marginal utility of x =
𝜕𝑥
1
3 𝜕𝑥 4 1 3 3
=𝑦 .
4 = 𝑦 4 . 𝑥 −4
𝜕𝑥 4
3
𝑦4
i.e. 𝑀𝑈𝑥 = 3 .
4𝑥 4
When x=16 and y=81,
3
(81)4 27 27
𝑀𝑈𝑥 = 3 = = .
4×8 32
4(16)4
 1 3
𝜕𝑥 4 𝑦 4
Secondly, marginal utility of y =
𝜕𝑦
3
1 𝜕𝑦 4 3 1 1
=𝑥 .
4 = 𝑥 4 . 𝑦 −4
𝜕𝑦 4
1
3𝑥 4
i.e. 𝑀𝑈𝑦 = 1 .
4𝑦 4
When x=16 and y=81,
1
3(16)4 3×2
𝑀𝑈𝑦 = 1 = = 0.5.
4×3
4(81)4
Now, as x decreases by 1 unit and y increases by 1 unit, we have:
Δ𝑥 = −1 and Δ𝑦 = 1.
So, ΔU = Ux . Δx + U𝑦 . Δy
27
= × (−1) + 0.5 × 1.
32
= −0.34375.
1 2
4. b. The utility function is given by U(x, y) = 𝑥 3 𝑦 3 . Find the marginal utilities when x
= 125 and y = 64. Hence, estimate the change in utility when x increases from 125 to
126 and y decreases from 64 to 63.
Solution:
Use the same method as of 4. a.
In this case too, Δ𝑥 = 1 and Δ𝑦 = −1.

1 1
5. a. The utility function is given by U(x, y) = 3𝑥 2 𝑦 3 Find the marginal utilities and
marginal rate of substitution (MRS) in terms of x and y. Evaluate U(x, y) and MRS at
(64, 27). Hence, estimate the decrease in y required to maintain the current level of
utility when x increases by 3 units.
Solution:
1 1
Here, utility function is given by U(x, y) = 3𝑥 2 𝑦 3
 1 1
𝜕(3𝑥 2 𝑦 3 )
Now, marginal utility of x (𝑀𝑈𝑥 ) =
𝜕𝑥
1 1
1 𝜕𝑥 2 3 1 1 3𝑦 3
−
=3𝑦 . 3 = 𝑦 .𝑥 3 2 = 1 .
𝜕𝑥 2
2𝑥 2
1 1 1 1
𝜕(3𝑥 2 𝑦 3 ) 1 𝜕𝑦 3 1 1 2 𝑥2
−
Secondly, marginal utility of y (𝑀𝑈𝑦 ) = =3𝑥 . 2 = 3. 𝑥 . 𝑦 2 3 = 2 .
𝜕𝑦 𝜕𝑦 3
𝑦3
1
3𝑦3
1
𝑀𝑈𝑥 2𝑥2 3𝑦
We know marginal rate of substitution (MRS) = = 1 =
𝑀𝑈𝑦 𝑥2
2𝑥
2
𝑦3
1 1 1 1
When x=64, y=27, we have: U(x,y)= 3𝑥 2 𝑦 3 = 3(64)2 (27)3 = 3.8.3 = 72.
𝑀𝑈 3𝑦 3×27 81
Secondly, (MRS) = 𝑥 = = = .
𝑀𝑈𝑦 2𝑥 2×64 128
𝜕𝑈
𝜕𝑥 𝜕𝑦
Lastly, MRS= 𝜕𝑈 i.e. MRS=
𝜕𝑥
𝜕𝑦
81 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑦
or, = [It is done so in order to retain the same value of MRS]
128 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑥
81 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑦
or, =
128 3
243
or, decrease in y = .
128

5.c. The utility function is given by U(x, y)=80𝑥 0.5 𝑦 0.5 .

i. Derive the expressions for the marginal utility of good X and good Y.
ii. Deduce an expression for the slope of the indifference curve.
Solution:
i. Here, utility function is given by U(x, y) = 80𝑥 0.5 𝑦 0.5
𝜕(80𝑥 0.5 𝑦 0.5 )
Now, marginal utility of good x =
𝜕𝑥
0.5
0.5 𝜕𝑥 1
= 80𝑦 . = 80. 𝑦 0.5 . 𝑥 −0.5
𝜕𝑥 2
𝑦 0.5
i.e. 𝑀𝑈𝑥 = 40. .
𝑥 0.5
𝜕(80𝑥 0.5 𝑦 0.5 )
Also, marginal utility of good y =
𝜕𝑥
0.5
0.5 𝜕𝑦 1
=80𝑥 . = 80. 𝑥 0.5 . 𝑦 −0.5
𝜕𝑦 2
𝑥 0.5
i.e. 𝑀𝑈𝑦 = 40. .
𝑦 0.5
𝜕𝑈
𝜕𝑥
ii. Slope of indifference curves = MRS = 𝜕𝑈
𝜕𝑦
 𝑦0.5
40. 0.5 𝑦
𝑥
= 𝑥0.5
= .
40. 0.5 𝑥
𝑦

6. a. The production function is given by Q = 2K 2 + L2 . Write down the expressions

for the marginal production and hence, show that
𝐿
i. MRTS= .
2𝐾
𝜕𝑄 𝜕𝑄
ii. 𝐿 + 𝐾 = 2𝑄.
𝜕𝐿 𝜕𝐾
Solution:
i. Here, production function is Q = 2K 2 + L2 .
Differentiating w.r.t. L and K respectively,
𝜕𝑄
= 0 + 2𝐿 = 2𝐿 and
𝜕𝐿
𝜕𝑄
= 4𝐾 + 0 = 4𝐾 which are the expressions for the marginal production.
𝜕𝐾
𝜕𝑄
𝜕𝐿
Now, marginal rate of technical substitution (MRTS) = 𝜕𝑄 .
𝜕𝐾
2𝐿 𝐿
Or, (MRTS) = = (proved)
4𝐾 2𝐾

∂Q ∂Q
ii. L.H.S. = L + K
∂L ∂K
=L.2L+K.4K
=2(2K 2 + L2 )
=2Q = R.H.S. (proved)

b. A firm has a production function 𝑄 = 50𝐿0.6 𝐾 0.3 . What is the marginal

productivity of labor and the marginal productivity of capital when amounts
expended on labor and capital are 256 units and 16 units respectively.
Solution:
Given production function is: 𝑄 = 50𝐿0.6 𝐾 0.3 .
∂Q
Now, marginal productivity of labor (𝑀𝑃𝐿 )=
∂L
∂(50𝐿0.6 𝐾0.3 )
=
∂L
= 30𝐿−0.4 𝐾 0.3
(16)0.3
= 30 =7.5
(256)0.4
∂Q
Secondly, marginal productivity of capital (𝑀𝑃𝐾 )=
∂L
∂(50𝐿0.6 𝐾0.3 )
=
∂L
= 15𝐿0.6 𝐾 −0.7
 (256)0.6
=15 =60.
(16)0.7

8.a. Find 𝑀𝑃𝐿 and 𝑀𝑃𝐾 for the production function 𝑄 = 2𝐿𝐾 + √𝐿
at L=4 and K = 7. Hence,
i. Find the value of MRTS.
ii. Estimate the increase in capital required to maintain the current level of output
when labour is decreased by 2 units.
Solution:
i. Here, production function (𝑄) = 2𝐿𝐾 + √𝐿.
∂Q
Now, marginal productivity of labor (MPL )=
∂L
∂(2LK+√L)
=
∂L
∂(2LK) ∂(√L)
= +
∂L ∂L
1
= 2K+ .
2√𝐿
1
= 2× 7+
2√4
=14+0.25
57
= .
4
∂Q
Secondly, marginal productivity of capital (𝑀𝑃𝐾 )=
∂K
∂(2LK+√L)
=
∂K
∂(2LK) ∂(√L)
= +
∂L ∂L
= 2L+ 0.
= 2× 4 = 8.
𝜕𝑄
𝜕𝐿
Now, marginal rate of technical substitution (MRTS) = 𝜕𝑄
𝜕𝐾
ii. Here, decrease in labour (∂L) = 2.
57
From (i), we have found that (MRTS) = .
32
𝜕𝑄
𝜕𝐿 57
Or, 𝜕𝑄 = .
32
𝜕𝐾
𝜕𝐾 57
Or, =
𝜕𝐿 32
𝜕𝐾 57
Or, =
2 32
57
Or, 𝜕𝐾 = .
16
So, increase in capital = 2 units.